What is the main purpose of a dividend policy?
a) To maximize the company’s tax obligations
b) To determine how much profit to retain and how much to distribute to shareholders
c) To decide the company’s capital structure
d) To increase the company’s operational costs
Which of the following is a factor that influences a company’s dividend policy?
a) Employee satisfaction
b) Profitability of the company
c) Industry trends in employment
d) Customer satisfaction
Which of the following describes a ‘stable dividend policy’?
a) Dividends fluctuate depending on the company’s earnings
b) Dividends are maintained at a fixed percentage of earnings
c) Dividends are set to increase every year regardless of earnings
d) Dividends are eliminated when the company experiences a loss
What is a ‘dividend payout ratio’?
a) The percentage of the company’s debt paid as dividends
b) The percentage of net earnings paid out to shareholders as dividends
c) The amount of stock issued to shareholders
d) The profit retained within the company for reinvestment
Which of the following is an example of a ‘cash dividend’?
a) Additional shares issued to shareholders
b) Cash payments distributed to shareholders from company profits
c) Corporate bonds issued to shareholders
d) A reduction in the company’s liabilities
Which of the following is the primary advantage of a high dividend payout ratio?
a) It allows the company to reinvest more in growth projects
b) It provides more income for shareholders in the short term
c) It leads to higher corporate taxes
d) It reduces shareholder equity
A ‘residual dividend policy’ suggests that dividends are paid based on:
a) The company’s historical dividend payments
b) The remaining profits after all profitable investment opportunities are funded
c) The amount the board of directors decides to distribute
d) The size of the company’s stockholders
What is the term used to describe a payment made to shareholders in the form of additional shares rather than cash?
a) Cash dividend
b) Stock dividend
c) Preferred dividend
d) Capital gains
Which of the following factors might lead a company to reduce its dividend payout?
a) Increased profitability
b) Decreased liquidity or financial distress
c) Expansion into new markets
d) High levels of retained earnings
What is the ‘ex-dividend date’?
a) The date when dividends are paid to shareholders
b) The date when shareholders must own the stock to receive the upcoming dividend
c) The date when the dividend policy is announced
d) The date when the stock price adjusts after the dividend payment
What is the primary goal of a company’s dividend policy?
a) To maximize dividend payouts at all costs
b) To achieve a balance between reinvestment and providing returns to shareholders
c) To minimize the company’s debt ratio
d) To minimize taxation on dividends
Which of the following is a characteristic of a ‘low payout ratio’ dividend policy?
a) A significant portion of profits are paid out as dividends
b) The company retains most of its earnings to reinvest in the business
c) Dividends are paid only in times of economic growth
d) The company aims to avoid paying dividends altogether
What happens to the share price of a company when it announces a dividend?
a) The share price typically increases by the dividend amount
b) The share price typically decreases by the dividend amount
c) The share price remains unaffected by the dividend announcement
d) The share price becomes more volatile
Which of the following is true about stock dividends?
a) Stock dividends reduce the total value of a shareholder’s investment
b) Stock dividends result in new income for shareholders
c) Stock dividends increase the number of shares owned by a shareholder without altering the total value
d) Stock dividends are taxed immediately upon issuance
Which of the following factors would most likely lead to a decrease in dividend payouts?
a) A steady increase in revenue
b) Increased investments in growth projects
c) Decreased interest rates
d) Stable earnings growth
Which type of dividend policy may attract income-seeking investors?
a) Stable dividend policy
b) Irregular dividend policy
c) Residual dividend policy
d) No dividend policy
Which of the following is a disadvantage of paying high dividends?
a) Reduced funds available for reinvestment in the business
b) Increased equity financing
c) Higher employee retention rates
d) Increased cash reserves for growth opportunities
The term ‘dividend reinvestment plan’ refers to:
a) The practice of reinvesting dividends in new company stock
b) Paying dividends in the form of bonds
c) Using dividends to reduce company debt
d) Reinvesting dividends in the form of cash bonuses to employees
Which of the following best describes a ‘mature company’ with regard to its dividend policy?
a) It typically reinvests most of its profits into high-risk projects
b) It may have a high dividend payout ratio due to stable earnings
c) It avoids paying dividends in favor of stock buybacks
d) It has irregular dividend payments based on fluctuating earnings
Which of the following might influence a company to issue a special dividend?
a) A major decrease in earnings
b) Excess cash that is not required for investment purposes
c) A decrease in stockholder equity
d) Low stock price performance
What is the effect of a ‘stock split’ on dividends?
a) Dividends are automatically increased
b) Dividends per share may be reduced, but the total value of dividends remains the same
c) Dividends are eliminated
d) Dividends per share increase significantly
Which of the following is a characteristic of a ‘high payout ratio’ dividend policy?
a) The company retains most of its earnings for reinvestment
b) The company pays out a large portion of its earnings to shareholders
c) The company has low earnings and does not distribute dividends
d) The company avoids dividends and focuses on stock buybacks
Which of the following is most likely to lead to a company’s decision to cut dividends?
a) Rising stock prices
b) Increased operational costs and debt levels
c) Surplus cash in the balance sheet
d) A decrease in shareholder demand for dividends
What is a potential downside for shareholders when a company decides to retain earnings instead of paying dividends?
a) Shareholders may face higher taxes on the retained earnings
b) Shareholders may receive lower income from dividends
c) The company may lose the opportunity to reinvest profits into growth
d) Shareholders may have to sell their shares to generate income
Which of the following dividend policies is considered the most predictable for shareholders?
a) Stable dividend policy
b) Irregular dividend policy
c) Residual dividend policy
d) Zero dividend policy
What is the ‘dividend yield’ for a company?
a) The percentage of earnings paid out as dividends
b) The market value of dividends paid relative to share price
c) The total amount of cash dividends paid to shareholders
d) The portion of dividends reinvested in company stock
